This article is relevant for you if you are a developer of retirement villages and intend to claim GST credits on your development costs.
Can you claim your GST credits on the construction of a retirement village?
What happened?
If you are involved in the development of retirement villages, a recent Administrative Appeals Tribunals (AAT) decision may be relevant if you intend to claim GST credits on the development costs (e.g. the costs of acquisition of the land and for the construction of the retirement village).
This is because, in this case, the AAT rejected a developer’s claim for input tax credits on 91% of such development costs on the basis that the retirement village predominantly made input taxed supplies (e.g. the units are rented out or licensed) as opposed to taxable supplies (e.g. selling the units).
When can a developer claim input tax credits?
Input tax credits may only be claimed on acquisitions that are made for a creditable purpose while carrying on a business (e.g. a developer develops units for sale).
Input tax credits may not be claimed on acquisitions made to make supplies that will be input taxed (e.g. a developer develops units to only lease/rent out).
What does this mean for you?
The potential implications of the AAT decision can be catastrophic for the retirement industry – for example, it may be a deal breaker if a commercial developer may no longer be able to claim $5 million GST credits on a $55 million retirement village development. The loss of the $5 million GST input tax credit would adversely affect net profit on the project.
Therefore, all potential tax (GST, capital gains tax and income tax) consequences must be considered before embarking on any significant project.
How can Nexia help you?
If you are involved in the development of retirement villages or any residential development and to avoid any unnecessary tax surprises, having certainty about the tax consequences such as knowing whether you would be able to claim GST credits on your development costs is essential.
Our team of tax specialists at Nexia Australia can assist you in undertaking such an analysis and also help you to restructure your business (if necessary) so that you can obtain the best outcome possible. We will ensure that you understand the application of our tax laws before embarking on any project.
Please speak to your Nexia adviser if you would like to discuss anything mentioned in this alert or if you would like us to perform a financial and tax health check on your business.
This is only one of the issues affecting the aged care sector – please see our Aged Care and Retirement Living Capability Statement to discover more ways we can help you with your retirement needs.
1 - Re RSPG and FCT [2016] AATA 687
